Bangkok--14 Jul--International Monetary Fund
On June 23, 2017, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with the Republic of Armenia. Since its independence, Armenia has made significant strides in enhancing macroeconomic stability. Growth has been satisfactory with inflation under control, the fiscal situation broadly well managed, and foreign exchange reserves enhanced. Since late 2014, the significant decline in remittances and the price of copper, Armenia's main export, have weighed heavily on growth, and adversely impacted the fiscal position. In 2016, GDP growth was only 0.2 percent, deflationary pressures persisted, and the fiscal deficit rose to 5.6 percent of GDP, while the current account deficit remained below 3 percent of GDP. Economic activity in 2017 has shown signs of recovery, accompanied by a pickup in inflation and private sector credit growth, supported by monetary policy easing.
With improving outlook in major trading partners and a pickup in private sector activity, real GDP is projected to grow by around 3 percent in 2017, while inflation would reach around 2 percent by end-2017. Medium-term growth is projected at 3.5-4 percent, with potential growth now estimated by staff to be 1 percentage point lower than in the pre-crisis period. Nevertheless, there are risks: the recent recovery in remittances and copper prices may not endure, and growth in key trading partners could be weaker than expected.
Looking ahead, Armenia continues to face significant challenges. Dependence on remittances leaves the economy vulnerable to external shocks, while a shrinking labor force associated with emigration makes it difficult to generate broad-based prosperity. The authorities' efforts to promote inclusive growth and increase resilience have focused on strengthening competition and governance, diversifying exports, and new initiatives to attract foreign direct investment (FDI). On the fiscal front, inadequate revenue base has limited the potential for much needed growth-enhancing investment and contributed to the increase in public debt. Against this background, the government is strengthening revenue mobilization through the introduction of a new tax code and renewed efforts to improve tax administration.